FEDERAL COURT OF AUSTRALIA

Farrugia v Farrugia [2000] FCA 516

COSTS – bankruptcy notice set aside because creditor’s solicitor adopted an erroneous verbal formulation contained in a Law Society of New South Wales precedent – bankruptcy notice contained various other errors arising from solicitor’s carelessness but not amounting to reason to set aside the notice - whether partial costs order should be made directly against creditor’s solicitor

Bankruptcy Act 1966 (Cth), s 32

Federal Court Act 1976 (Cth), s 43

Da Sousa v Minister for Immigration, Local Government & Ethnic Affairs (1993) 114 ALR 708, followed

Ironaid v Tsatsoulis [1996] SCNSW (unreported, 7 June 1996), followed

Kleinwort Benson v Crowl (1988) 165 CLR 71, cited

ALFRED FARRUGIA v JOSEPH FARRUGIA

N 7443 of 1999

MADGWICK J

20 APRIL 2000

SYDNEY

THE COURT ORDERS THAT:

1.                  The respondent is to pay 90 per centum of the applicant’s costs of the proceedings and the respondent’s solicitor is to pay the balance.

REASONS FOR JUDGMENT

HIS HONOUR:

1                     On 2 March 2000 I made orders in this matter setting aside a bankruptcy notice issued against Alfred Farrugia, the applicant/debtor, by Joseph Farrugia, the respondent/creditor.  In my reasons for decision, published on that day (see Farrugia v Farrugia [2000] FCA 129), I indicated that three matters had been pressed by the applicant in those proceedings: first, that the notice contained an overstatement of the amount in fact due; second, that the notice was misleading as to the amount due both because it was unclear under which statutory provision interest was being claimed on the notice, and because the notice had inserted a paragraph taken from a New South Wales Law Society precedent form that was likely to cause confusion; and, finally that the notice did not comply with the prescribed form under the Bankruptcy Act 1966 (Cth).

2                     Ultimately the application succeeded by establishing “the second aspect of the debtor’s case that the notice was misleading [which] stem[ed] from the creditor’s solicitor having taken a paragraph from the NSW Law Society’s precedent and inserted it in the notice”.  However, despite the debtor having been unsuccessful on the other grounds pressed, it is clear that the drafting of the bankruptcy notice by the creditor’s solicitor was less than satisfactory in other respects as well.  First, although no overstatement was established, the notice did contain a miscalculation of the interest claimed (see paras 2, 8 and 9).  Second,  although the failure of the notice unambiguously to state the statutory provision under which interest was due was not “misleading” within the meaning of Kleinwort Benson v Crowl (1988) 165 CLR 71, it was “an unfortunate case of a solicitor’s sloppiness” (see para 14).  Third, with regard to the claim that the notice was not in the correct form, I noted at para 20 that:

“While the present was not a case of a total failure to state a provision or provisions, what the document stated was (i) an incompetent misdescription of the correct provision, and (ii) something that only a person familiar with legal abbreviations and the NSW court system would realise was intended to refer to a statutory provision.”

3                     Although these errors were not determinative of the issues raised in the proceedings they nonetheless prolonged the hearing of the matter and were no doubt an impetus to the litigation.  Every ground pressed by the debtor was touched in some way by merely careless inadequacies in the drafting of the bankruptcy notice.  Therefore, at the conclusion of my reasons, I invited written submissions from the parties “on whether I should not make an order for costs to the effect that the creditor should pay half the debtor’s costs and creditor’s solicitor should pay the balance.”

4                     According to s 32 of the Bankruptcy Act 1966 (Cth) costs are in the discretion of the Court.  Although there is no explicit provision under the Federal Court Act 1976 (Cth) or the Federal Court Rules providing for the making of a costs order against a solicitor, French J in Da Sousa v Minister for Immigration, Local Government & Ethnic Affairs (1993) 114 ALR 708, held that such an order was within the Court’s general jurisdiction to award costs under s 43 of the Act.  In that case French J at 712 offered guidance in the making of such an order:

“The jurisdiction is to be exercised with care and discretion and only in clear cases. The mere fact that the litigation has failed is plainly no ground for its exercise. There has to be something which amounts to a serious dereliction of duty”.

5                     Counsel for the creditor relied upon the decision of Bryson J in Ironaid v Tsatsoulis [1996] SCNSW (unreported, 7 June 1996) in which it was said:

“It is in my judgment plain that the business was not handled skilfully… [However] I do not see it as a professional shortcoming in this matter that he accepted counsel’s advice in this matter… [The] advice was not such that another professional person failed professionally by not rejecting it… The shortcoming in the advice related to a matter of practice and procedure affected by the complexity of the matters to be dealt with incidentally to principal litigation and, although the advice appears poorly to me in retrospect, it was not outside the range of options which would reasonably be held”.

I agree that, in the context of the highly technical rules of bankruptcy law, following a form recommended by the Law Society of New South Wales is analogous to a solicitor following a recommendation of counsel.

6                     However, the discretion to vary the usual rule for costs is not limited only to derelictions of duty with regard to determinative findings.  What concerns me is not the reliance on the Law Society form by the solicitor but other, more easily avoidable mistakes in the drafting of the bankruptcy notice.  The failures of the respondent’s solicitor in this case, as detailed above and in the primary judgment, were many and amounted, when taken together, to performance much below a proper professional standard.  It is notorious that the drafting of bankruptcy notices is detailed and technical work; this heightens the need for care and attention to detail.

7                     It is, however, pointed out that the debtor elected at a late stage not to press certain matters that had been foreshadowed.  The creditor’s legal advisers would have needed to prepare on these aspects.  Hence that part of preparation of the creditor’s case necessitated by mere carelessness on the part of his solicitor would have been relatively minor.  Rather less than half the preparation time of the debtor’s case was probably affected by the creditor’s solicitor’s poor work.

8                     Viewing the matter broadly, I think justice would be done if I ordered the creditor to pay 90 per centum of the debtor’s costs of the proceedings and the creditor’s solicitor to pay the balance.

Associate:

Dated:              20 April 2000